What to Make of the Drop in MagneGas Stock (MNGA)

MagneGas Corp. (MNGA) stock dropped heavily on November 16 as investors responded to the company’s continued negative income. It’s hard to imagine that anyone was surprised, but apparently they were. The company has been losing money for years as it struggles to gain recognition in the alternative energy space.

Revenues were actually up 66%, but this did little to encourage investors. MagneGas reported a 3Q loss of $4.1 million, or 8 cents a share. The stock is currently at 50 cents per share. (See also: MagneGas Drops Second Time Since Breakout.)

That price is only a bargain if you have money you are willing to lose. Penny stocks notoriously go to zero, and at this point, buying the stock is more akin to gambling than investing. (See also: Understanding Penny Stocks' Risks and Rewards.)

That said, the company has secured several important contracts for its MagneGas2 product that converts liquid waste to gas. The New York City Transit Authority contracted for the gas, and the auto industry has become interested in the product. In fact, MagneGas has a backlog of orders to fill. It just signed its largest agreement to date with a German company.

MagneGas also has a strong presence on the Gulf Coast, including Green Arc Supply, which purchased a gasification system from MagneGas. In addition, MNGA is purchasing a coal combustion company that could increase revenues.

None of this guarantees that revenues will outpace expenses anytime soon, but for the optimist with money to burn, the company seems to be getting some attention in the energy space. Be prepared to lose the entire investment, and determine if you are the type who won’t worry every day what MNGA is doing.

Not all of the ups and downs in penny stocks follow the rules of larger stocks, and trying to figure out what causes the fluctuations can vex the hardiest of investors.

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